Novartis has recently agreed to settle a $99 million lawsuit regarding unpaid overtime and wage claims. Their decision comes in the wake of appellate court decisions made in July 2010 and February 2011. In the July ruling, the U.S. Circuit Court of Appeals in New York ruled that pharmaceutical sales reps are not exempt from overtime, and in February of 2011, the U.S. Supreme Court refused to review the appellate decision which essentially finalized the ruling of the Supreme Court.
Exempt Employees and Overtime
Under the wage and hour laws passed by the Fair Labor Standards Act, employees must be paid overtime at a rate of time and a half for hours worked over 40 per week. The only exception to this rule is whether employees are exempt from overtime or not.
Novartis treated an estimated 7,000 pharmaceutical sales reps as exempt, and believing they had been improperly classified, the sales reps filed a claim in 2006. Now, six years later, Novartis President Andre Wyss says that they simply want to settle the case and move on.
The Novartis case is a fresh reminder that employers and HR professionals must be careful in determining whether an employee is considered exempt or not.
The guidelines for determine when an employee is exempt are found in the Fair Labor Standards Act section 13(a). Employees may be exempt if they are executives, administrative professionals or outside salespeople. However, the requirements indicate that an employee’s job classification alone isn’t sufficient to guarantee exemption, nor is the question of whether an employee is paid hourly or not. Instead, employers must consider the duties performed by the workers, the level of autonomy, how much time the worker spends away from the office, and what level of authority the worker has.
In the Novartis case, it was argued that the pharmaceutical sales reps were exempt under either the exception for administrative personnel or the exception for outside sales people. However, when the courts determined that since the reps were promoting products for Novartis rather than making a sale, they did not fall within the definition of outside sales people. Further, because the sales reps were constricted in what they could say to doctors by Novartis’ detailed guidelines, they did not have the level of autonomy or independent decision making necessary to fall within the administrative exemption.
The lesson learned from the Novartis case is that it can never be assumed that an employee will be exempt because of his job title or because he meets some characteristics of an exempt employee. Unless a worker falls within the clear parameters of the FLSA exemptions, it is best to consult with a legal professional for advice on what the employee’s true status is before considering the employee exempt.